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  • Tax

    Early repayment of mortgage - tax allowance

    Dear all, i recently sold a BTL and paid an early repayment charge (redemption penalty to the lender) and was wondering where I would offset this cost - against the rental income or against the CGT for the property?

    Thank you!

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    I've sold one and incurred an ERC in this tax year too. I was hoping to allow for it against CGT calculations. I'd be interested in any professional answers on this matter though !

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    Is it a cost of sale? Why was it spent? To enable the property to be sold. The expenditure will classified based on the intention behind it which I presume is fairly clearly to clean up the title as part of the sale. CGT deduction available.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022

    I recall seeing alternate view that ERC as a finance cost is offset against rental income - which would be currently advantageous to a 40% taxpayer.

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    Usually ERC would be a finance cost (s24!). However in this case it is important to look at the circumstances.

    It is so easy to miss opportunities to save tax without proper getting advice.

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    Chartered Accountant, Tax Advisor and Mortgage broker

    (and BTL portfolio owner)

    stuart@johnsonsca.com

    02039077022


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    DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.


    From the latest tax book I'm currently reading:


    It is now more generally acceptable that refinancing is a normal, commercial part of a property business and early redemption fees will generally be accepted as an allowable cost for the Income tax purposes, provided that there is a good business reason for the early redemption.

    From the book: How to save property tax by Carl Bayley


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    We also have been charged 4,800 pounds for early settlement but we will have it rescinded if we have a further mortgage with the same company within I think 4 years. How to account for that situation is beyond me!

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